Ottawa: In a striking reversal, the Canadian government has officially withdrawn its planned 3% digital services tax, bowing to mounting pressure from Washington and an explicit threat from U.S. President Donald Trump to terminate all trade discussions. The tax, which was set to take effect on July 1 and apply retroactively from 2022, was aimed at large tech corporations such as Google, Meta, Amazon, Uber, and Airbnb.
The decision comes just hours before the controversial measure was scheduled for implementation. Canada had initially framed the tax as a temporary but necessary step to ensure big tech companies paid their fair share in the country, citing increasing revenue generated from Canadian users. However, Trump called the move "a hostile economic act" and swiftly suspended bilateral trade negotiations, warning of retaliatory tariffs on steel, aluminum, and automobiles.
Following intense diplomatic engagement over the weekend, Canadian Prime Minister Mark Carney held a late-night phone call with President Trump, during which both leaders agreed to restart stalled trade talks and work toward a new economic pact by July 21, 2025. The Canadian Finance Ministry later announced that the tax had been officially shelved as a goodwill gesture to reset the tone of negotiations.
"This is a strategic decision made in the interest of national economic stability and the broader partnership with our largest trading partner," said Finance Minister François Philippe Champagne. "We remain committed to fair taxation and digital regulation but will now pursue this through coordinated global mechanisms."
The move was greeted positively by the business community, with the American Chamber of Commerce in Canada hailing it as "a step toward rational trade policy and economic growth." U.S. stock markets responded with optimism; Dow futures climbed by 0.6%, with tech-heavy Nasdaq indices also seeing a boost, signaling renewed investor confidence.
Critics, however, have accused Ottawa of capitulating too easily under U.S. pressure. Opposition leaders expressed concern that the retreat may embolden future American demands and weaken Canada’s position in setting sovereign digital taxation policies.
The digital tax had been a centerpiece of Canada’s new fiscal framework aimed at adapting to the modern economy. It targeted companies earning more than CA$20 million (approx. US$15 million) annually in digital services revenue sourced from Canada. The tax’s removal marks a significant concession but underscores the fragility of North American trade relations in the current political climate.
As both nations prepare to restart high-stakes negotiations, expectations remain high that a reworked trade deal will not only eliminate existing tensions but also modernize agreements in areas like digital commerce, energy cooperation, and cross-border infrastructure.
Whether the U.S.-Canada relationship can withstand further ideological and economic friction will likely depend on the outcome of these talks and how both sides navigate the increasingly complex global trade landscape.